The Key Drivers and Challenges to International Growth: A Finance Team’s Perspective

Lauren Davies, EMEA Campaign Marketing Manager

January 29, 2019

International expansion is a proven recipe for growth, but it comes with its own set of challenges.

A recent survey(opens in new tab) from Frost & Sullivan and NetSuite found that 27 percent of European firms point to international expansion as an obvious growth opportunity for their business.

In a recent webinar(opens in new tab), Thomas Sutter, from NetSuite’s Global Solutions Centre of Excellence, said he was surprised to learn that this statistic is not higher.

“Expanding a business outside of the initial headquartered country opens up so much more,” he said. “There is the obvious market size increase for sales opportunities, but also more efficient economies of scale, which helps to diversify so you’re not reliant on just one market.”

The opportunities extend further than just a business’s existing products and services though. There may be a gap in a niche overseas market for a product or service that a business knows it can easily provide within its existing capabilities, in turn, furthering diversification and ensuring all its eggs aren’t in one basket.

The benefits and drivers extend across a business and are not just limited to an increase in the size of the marketplace, either.

“There is, of course, the chance to save on things like labour and materials, but what excites me the most when expanding internationally is the people. There’s so much great talent in this world,” Sutter said.

Challenges of International Growth

The rewards and benefits of expanding internationally inevitably come with challenges at every step along the way. It’s important that finance teams are aware of what they might be facing before growing the business overseas, and to be adequately prepared for differing circumstances and outcomes.

“There’s obviously a cost associated with each new market you enter,” Sutter explained in the webinar. “There’s often a negative in the bottom line profitability, which includes the start-up costs.”

There’s also the opportunity cost of your current employees.

“These people would have otherwise been working on the established part of the business, but now they are working on hiring staff, understanding new markets and setting up the back-office functions,” he said.

Martin Preen, CEO of Buster + Punch, discussed on the webinar the challenges his company faced when expanding internationally. “One of the big challenges for us was that while in London we had a system that was just okay; in the US we had nothing, and in Asia we just had spreadsheets,” he said. “Trying to pull something together to see where we were took an age…if you haven’t got that visibility about where you are, it’s exceptionally difficult to make really good decisions.”

There’s a lot of other challenges to consider that are not always flagged in initial plans to expand overseas. Some of finance’s biggest headaches come when a company expands to a multi-country operation, such as the fluctuations in currency exchange rates, and local legal, tax and regulatory requirements that finance teams are otherwise unfamiliar with, like local trading standards, direct tax on profit, VAT etc. Regional competitors can also be a threat to growth, since they already have an established brand and customer base in the local market, as can operational challenges, where new systems and processes need to be recognised to be regionally suitable.

Businesses’ biggest concerns when expanding internationally

In the Frost & Sullivan and NetSuite study on The Role of Cloud in European Business Transformation(opens in new tab), respondents cited legal complexities as the biggest worry to expanding internationally.

Further, an EY study(opens in new tab) found that 71 percent of CFOs say that the complexity of changing compliance requirements at a local and international level is affecting reporting effectiveness. In that study, 56 percent of CFOs state that they have 11 or more reporting standards with which they must comply, and the same number also say that they use 11 or more systems to provide these reports, illustrating just how complicated and time-consuming compliance and reporting are to the finance function.

Confronting the Challenges

Expanding into new markets and overseas is a logical step for high-growth companies, but there are certainly a multitude of risks that need consideration, and largely from the finance teams’ point of view.

There are a few different ways that businesses can progress and approach some of these challenges. Using local advisors and accountants, or keeping everything in house and implementing a single, integrated cloud financials system are a few such suggestions, however, there are potential pitfalls to analyse in every solution.

Hosted by Kevin Reed, accountancy journalist and former Accountancy Age Editor, alongside career finance director and member of NetSuite’s Global Solutions Centre of Excellence, Thomas Sutter, the recent webinar, ‘A CFOs Guide to International Expansion and Compliance(opens in new tab)’ delves further into the key finance challenges facing CFOs and finance teams looking to grow, and highlights both the pros and cons to suggested approaches to overcoming the challenges.

Watch the webinar on-demand(opens in new tab) to learn more.

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